Buffett Hires an Outsider to Oversee Investments

Tuesday

Oct 26, 2010 at 5:09 AM

Todd Combs, until now a little-known hedge fund manager, rises to prominence and figures in succession talks at Berkshire Hathaway.

ANDREW ROSS SORKIN and THOMAS KAPLAN

Warren E. Buffett announced Monday that his company, Berkshire Hathaway, had hired a young hedge fund manager to oversee a “significant portion” of its investment portfolio, adding a new name to the mix of players who are someday expected to take the reins at Berkshire.

The manager, Todd Combs, 39, has spent the last five years running Castle Point Capital Management in Greenwich, Conn. After Berkshire spent three years looking for someone to take on oversight of a big chunk of its portfolio, Mr. Buffett said that Mr. Combs emerged in the last few months as someone who was not only a talented manager, but also the right fit for the company.

“He’s always been enamored with Berkshire,” Mr. Buffett said by telephone. “I know he’ll be good, but he’s the right type of guy. We don’t want someone who’s trying to figure out if they can make $100 million with us, or $200 million with the next guy.”

Mr. Combs, a largely unknown hedge fund manager, on Monday joined the investing world’s rising stars, and his profile will surely grow as chatter continues about the inevitable changing of the guard at Berkshire.

Mr. Combs founded Castle Point Capital in 2005 with seed money from Stone Point Capital. He announced his departure in a letter to the firm’s partners on Monday. (He could not be reached for comment.)

Berkshire did not give details about what parts of its over-$100 billion portfolio Mr. Combs would manage, but Castle Point has focused on the financial services sector, according to its most recent filing with the Securities and Exchange Commission.

Mr. Buffett, 80, has said that upon his death or retirement, his roles of chairman, chief executive and chief investment officer will be split among multiple people. Mr. Combs now stands as the heir apparent to the chief investor position, though Mr. Buffett made clear such an appointment had not been decided.

“He’s got the best chance of being the successor, but if we find the right guy or gal, we’d take that person, too,” he said.

One person no longer expected to be in the mix is Li Lu, a Chinese hedge fund manager who had been mentioned as a likely candidate. Mr. Buffett said Mr. Li, who did not return a telephone call Monday, had decided to stay at his own fund.

In the interview, Mr. Buffett also seemed to tamp down some characterizations of Mr. Combs as his chosen successor to run Berkshire. As significant as the investment position is, Mr. Buffett made clear that the chief executive position, which oversees Berkshire’s acquisitions, operations and overall business strategy, is paramount.

Mr. Buffett added that he had three people in mind as possible candidates for the top post. He said the Berkshire board, which is scheduled to meet in the next few weeks, planned to spend at least half of that next meeting discussing succession.

Also Monday, Berkshire disclosed letters that it had exchanged with the S.E.C. between April and September regarding why it did not write down nearly $1.9 billion in market declines in its 2009 annual report.

The holdings in question included Kraft Foods, for which Berkshire’s unrealized losses as of Dec. 31 totaled $789 million, and U.S. Bancorp, for which Berkshire’s holdings declined in value $646 million. Berkshire said in a letter to the S.E.C. in May that it expected the holdings to recover their losses in the next year or two.

The S.E.C. said in a September letter that it had reviewed Berkshire’s response and had no further comment.